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Pakistan is among the top producers of cotton, sugarcaneand food grains, i.e. wheat, rice and maize. However, significantly large quantities of food grains stale before reaching the market. This on one hand deprives growers of their rightful return and on the other hand does not allow the country to earn foreign exchange from export of surplus quantities. State Bank of Pakistan (SBP) embarked upon Warehouse Receipt Financing (WRF) program and issued the framework nearly six years ago. The central bank considers that development of WRF is inevitable for achieving food security, improving return to farmers and above all saving the output that goes stale before reaching the market. This requires millions of dollars investment for the construction of well organized warehousing infrastructure, imposition of stringent grading standards and ensuring proper collateral management.

In this venture, apart from the central bank and commercial banks (both conventional and Islamic), the other key stakeholders include Securities and Exchange Commission of Pakistan (SECP), federal and provincial governments, Pakistan Mercantile Exchange (PMEX), insurance companies, warehouse operators, collateral managers and farmers’ association. However, it remains a fact that unless modern warehouses are constructed in the country, this dream is not likely to become a reality.

It is worth noting that Securities & Exchange Commission of Pakistan (SECP) has finally come up with Draft Regulations regarding Collateral Management Companies, it has last floated similar draft in 2016, which had yielded no result. It is necessary to point out that SBP had come up with WRF programs more than five years ago, but required framework remained missing and the program could not take off. Over the years it also became evident that WRF program could not become a norm unless modern warehouses are established and clearly defined policy governing warehouseoperating system is introduced in the country.

After going through the latest Draft Regulations, it appears that instead of offering a plausible solution for offering an efficient WRF mechanism, the apex regulator is trying to create yet another supra authority, for accreditation and participation of general public is discouraged. The feeling develops after reading two of the stipulated two conditions: 1) flotation of a public limited company and 2) fixing of minimum capital at Rs200 million. Both the conditions appear stumbling blocks keeping in view the recent deferment of flotation of a Modaraba. It must be kept in mind that the Company that intended to float the Modarabahas a history spread over decades, as against this the very concept of Collateral Management Company is new altogether. The last nail in coffin is a non-refundable fee of five hundred thousand rupees.

It also appears that SECP has tried to replicate the Regulations in force in India. However, while trying to ‘localize it’ the Commission has distorted the original spirit. While there is nothing wrong in seeking inspiration from the regulatory framework of India, the effort should have been to improvise the rules and making it workable rather than creating new hurdles.

It also appears that the proposed regulations have been drafted without consultation with the key stakeholders as well as taking into account the local working conditions. As stated earlier, the spirit of these regulations should have been to facilitate construction of modern warehouses. It is necessary to reiterate that unless farmers are convinced to keep their produce at warehouses being operated by ‘third party’ issuing warehouse receipts and subsequent warehouse receipt financing will remain a far cry.

To begin with, the existing system of public warehousing system should have been upgraded, simply because local business community has been using it for decades. Since the focus of the proposed system is to protect the interest of all the stakeholders the Regulations should have been aimed at ensuring security of produce from going stale, monitoring in and out movement and keeping the buyers/sellers as well as concerned banks up dated.

It seems that apex regulator has a myopic vision and it has based the concept on the functioning of Central Depository Company (CDC) rather than coming up with a concept of grain storage depository. Let one point be very clear that CDC offers a custodian service for shares to create paperless environment, whereas grain depository involved many factors. A grain depository manages in/out movement of produce, storage and quality certification to protect the interest of all the stakeholders.

This point can be best understood by the fact that the country produced around 25 million tons wheat every year. The quality of wheatproduced in various district is not homogenous and buyer are often willing to pay premium for the wheat produced in certain district. Similarly, rice of different varieties has to be kept segregated as some are sold at premium and others are sold at a discount.

Indian Experience

StarAgri Warehousing and Collateral Management offer warehousing, procurement and collateral management services. The company established in April 2006 and has presence in 190 locations across 16 states. It has 800 agricultural commodity warehouses under its control, with a cumulative capacity of around 1.2 million metric tons. The company has five post-harvesting focus areas: warehousing, procurement, collateral management, lab testing and logistics. Bulk of its revenue (65%) is driven from warehousing services. StarAgri was founded in April 2006 with an initial paid-up capital of 0.5 million rupees, which was raised to 5 million rupees in 2007-08. The company currently has a direct relationship with over 50,000 farmers. StarAgri has achieved ISO 9001:2008 and ISO 22000:2005 accreditation. The company collaborates with over 375 food processing companies. It has 15 labs to ensure purchases meet specifications stipulated by clients in terms of quality and quantity. StarAgri caters to customers ranging from banks to international bulk commodity buyers, food, health & FMCG companies and commodity exchanges.

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